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State, Society, and Unemployment Insurance

Perhaps the difference that most fundamentally separates true liberals and libertarians from others is that, to one degree or another, true liberals and libertarians are, unlike non-liberals and non-libertarians, dutiful sons and daughters of the Scottish Enlightenment.  And one of the great lessons of that remarkable intellectual movement is the refinement of the understanding that state and society are not the same thing.  Society is not created by the state, and the state’s activities not only do not define those of society but often diminish society’s activities.

I thought of the distinction between state and society when I read this passage in Paul Krugman’s column from this past Friday’s edition of the New York Times:

For the fact is that F.D.R. faced fierce opposition as he created the institutions — Social Security, unemployment insurance, more progressive taxation and beyond — that helped alleviate inequality.

Did Franklin Roosevelt “create” unemployment insurance?  His administration did champion legislation that created government-provided unemployment insurance.  But Mr. Roosevelt emphatically did not create such insurance.  Here’s a letter that I sent to the Times in response:

Paul Krugman mistakenly credits Franklin Roosevelt with having “created” unemployment insurance (“On Being Partisan,” Jan. 26).

Private unemployment insurance was offered long before the New Deal.  As Professor Michael Rappaport found, starting around 1910 companies began selling such insurance to railroad workers.  Alas, seeking to offer such coverage to other workers, private insurers were consistently blocked by state governments.  And when New York’s legislature in 1931 finally approved the expansion of private unemployment insurance, the bill was vetoed by none other than Gov. Franklin Roosevelt.

Donald J. Boudreaux

The Rappaport paper is “The Private Provision of Unemployment Insurance,” Wisconsin Law Review, Vol. 61 (1992).   (I cannot find a non-gated version of this paper on line.)  A summary of some of the key points of the paper is found in this Regulation article by George Leef.

Private, voluntary actions supplied unemployment insurance in yet other ways.  My friend Steve Ziliak wrote, after I sent him a copy of my letter:

As I and David Beito have independently found, fraternities, sororities, lodges, and mutual aid societies had been offering private unemployment insurance in the United States throughout the second half of the 19th century and in the early years of the 20th.  Also: sickness insurance, death insurance, worker injury insurance, and temporary charitable aid.  Fred’s and Barney’s membership in the Royal Order of Water Buffalo Lodge “back in the Stone Ages” isn’t much of a fiction.

Steve also offers these cites:

David T. Beito, From Mutual Aid to the Welfare State: Fraternal Societies and Social Services, 1890-1967

S. T. Ziliak (with Joan Hannon), “Public Assistance: from Colonial Times to the 1920s,” Historical Statistics of the United States (Millennial Edition, Cambridge University Press, 2006). S. Carter, et al., eds.

S. T. Ziliak, “The End of Welfare and the Contradiction of Compassion,” The Independent Review Vol. 1 (1996).

I suspect that unemployment insurance would today be much more efficiently supplied, with greater attention to the individual needs and circumstances of workers and their families, had the state not pre-empted and prevented society from creating this beneficial institution.

F.D.R. clearly did not create unemployment insurance.  It’s closer to the truth to say that he helped to destroy it.


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